Samsung Shares Skid as Analysts Turn Gloomy

Visitors walk past a glass door showing the logo of Samsung Electronics at the company’s showroom in Seoul.

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For shareholders in Samsung Electronics Co., it’s been a cruel summer.

With the calendar year winding down on August today, shares in South Korea’s biggest stock are down about 8.1% for the month, for a total decline of 16% from their June 3 highs. That puts Samsung in danger of falling into a bear market, generally defined as a decline of 20% or more from a recent peak.

By comparison, South Korea’s broader Kospi Composite Index finished August roughly flat, and is up 3.7% since the beginning of June. On Friday, Samsung shares gave up 0.6% to 1,234,000 Korean won ($1,216) per share, outpacing a 0.4% pullback in the Kospi.

The declines come as analysts and investors turn increasingly sour on the near term prospects for both the company and its stock.

Earlier this week, analysts at Woori Investment & Securities, Nomura Securities and Hyundai Securities all slashed their target price on Samsung to between 1,500,000 and 1,600,000 won, from between 1,6500,000 and 1,800,000 won.

The worries center around Samsung’s smartphone business. Woori analyst Peter Lee captured the mood, citing “intensified competition” from Chinese players like Xiaomi and Apple Inc.'s expected iPhone 6 launch this fall, which could push Samsung’s operating profit to as low as six trillion won for the current quarter.

Will Cho, an analyst for KDB Daewoo Securities, says that the company’s inventory problems — Samsung smartphones are piling up unsold at stores — mean that Samsung will have to either ship fewer phones, or sell more by slashing its prices. “Either way, higher costs will eat into profits,” he warned clients.

Worse, he adds, new product launches aren’t making quite the same splash that they used to — an unnerving trend as Samsung prepares to roll out the latest refresh of its Galaxy Note 4 smartphone-tablet hybrid next week at a trade show in Berlin.

The company also announced earlier this month the release of a new line of metal-framed smartphones, the Galaxy Alpha, which will go on sale next month.

“New smartphone releases no longer appear to have the strong effects they once enjoyed,” Mr. Cho wrote. “We do not expect new models like the Galaxy Note 4 and the Galaxy A series to have much of an impact on earnings.”

Some Samsung shareholders and analysts even argue that the company’s owners don’t have much incentive to push the share price higher, given the need for Jay Y. Lee, son of ailing company chairman Lee Keun-hee, to buy more Samsung shares, under certain estate planning scenarios.

But there are signs that analysts and investors may be done lowering their expectations, at least for now. Despite the downgrades, analysts remain upbeat on the stock, particularly because its semiconductor business, while smaller than Samsung’s smartphone business, is picking up momentum.

Mr. Cho adds that a strategic focus back to components, from smartphones, could give the company a “soft landing” as profits in its smartphone division falls. He points to Samsung’s truce with Apple earlier this month on patent suits as evidence that Samsung is clearing the way to sell more chips and display panels to its Cupertino, Calif.-based rival.

And in a twist on conventional wisdom, some analysts argue that the company’s recent smartphone woes are putting Samsung in “crisis mode,” following a long run of success and complacency. While “crisis mode” may not sound great, it’s a central part of Samsung management lore: for years, Mr. Lee, the company’s patriarch, has made it a mantra to nurture “a heightened sense of crisis” at Samsung.

Nomura Securities analyst C.W. Chung, who has lowered his price target for Samsung shares three times since last June, argues that Samsung has thrived when its back is against the wall, and advises clients to “further accumulate shares” at the current stock valuations, which by many measures are depressed.

By Mr. Chung’s preferred metric, the value of Samsung shares at the current stock price have fallen to the point where they are roughly equal to the value of the company’s assets if the company were to go bankrupt immediately — a level so low that he reasons the only direction to go at this point is up.